VFS Team Leaders Present on Quantifying Personal and Entity Goodwill

Asif Charania and Greg Saunders share insights at the Valuation Products and Services StraightTalk Webinar

On August 12, 2025, Keiter Valuation and Forensic Services team leaders, Asif H. Charania, CPA/ABV/CFF, ASA, Partner and Greg P. Saunders, CPA/ABV/CFF, ASA, Senior Manager, presented at the VPS StraightTalk Webinar on the topic Quantifying Personal and Entity Goodwill. The session drew tax professionals, valuation specialists, and attorneys seeking practical approaches for distinguishing personal goodwill from entity goodwill in valuation matters.

Key takeaways

• The presence or absence of non-compete agreements can significantly alter whether goodwill is attributed to the individual or the entity.
• Distinguishing between personal and entity goodwill may result in substantial tax savings in corporate transactions.
• In family law matters, state law governs whether personal goodwill is considered marital or separate property, which can materially affect valuations.
• A disciplined, fact-driven methodology is critical to withstand scrutiny in both tax and litigation settings.
  

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Why personal vs. entity goodwill matters

The presenters emphasized that the division of goodwill into personal and entity components has important implications across tax compliance, financial reporting, mergers and acquisitions, and divorce litigation. While accounting standards generally treat goodwill as a single residual asset, tax law and judicial precedents have recognized personal goodwill as a distinct, individual-owned intangible. Correctly identifying and quantifying personal goodwill can reduce tax exposure in corporate transactions and play a pivotal role in equitable distribution in family law matters.

Legal foundations and case law

The session reviewed landmark cases that have shaped the treatment of personal goodwill. For example, in Martin Ice Cream Co. v. Commissioner (1998), the Tax Court recognized that a shareholder’s personal relationships with customers constituted an individual asset, separate from corporate goodwill, particularly in the absence of a non-compete or employment agreement. Similarly, in Norwalk v. Commissioner (1998), the court held that client relationships were not corporate property without contractual transfers.

More recent cases, including Huffman v. Commissioner (2024), highlighted how the courts continue to scrutinize goodwill allocations in both tax and family law contexts, underscoring the importance of defensible methodologies.

Frameworks for valuation

Asif and Greg outlined several practical methods for quantifying personal goodwill:

• With-and-Without Method – Models cash flows both with the owner’s continued involvement and without it, measuring the incremental difference as personal goodwill.
• Multi-Attribute Utility Model (MUM) – Scores key attributes such as reputation, client relationships, and referral networks to allocate value between personal and enterprise goodwill.
• Residual Method (Purchase Price Allocation) – Values all identifiable intangibles separately, leaving residual goodwill to be divided between personal and entity components.

Each method was illustrated with case studies, reinforcing how appraisers can apply these tools effectively in different contexts, from tax planning to divorce valuations.

Interested in correctly identifying and quantifying personal goodwill to reduce tax exposure in corporate transactions or to assist with equitable distribution in family law matters? Contact our Business Valuation Services team | Email | Call: 804.747.0000